EPA Targets Methane in New Regulations

President Obama has pledged to crack down on methane emissions in an effort to reduce the climate impact from oil and gas drilling. To that end, he issued a Climate Action Plan in 2014 to attack methane emissions at various points of the oil and gas production process. This resulted in three proposed EPA rules in August 2015, which placed the first ever limits on methane from the energy industry. The regulations have the goal of reducing methane emissions by 40 to 45 percent below 2012 levels by 2025. On May 12, the EPA finalized those rules.

The rules were also slightly stronger than the original proposal. For example, low-production wells are also included in the rule, wells that were exempted under the 2015 proposal.

The EPA regulations will require drillers to reduce emissions from equipment, perform green completions (capturing gas rather than flaring the excess), and inspect and monitor methane leaks from pipelines and other infrastructure. The rules were also slightly stronger than the original proposal. For example, low-production wells are also included in the rule, wells that were exempted under the 2015 proposal. Under these measures, only new and modified sources will be affected, not existing wells.

But in March, the White House announced that it would build on this approach by expanding regulatory action to include all existing oil and gas wells, a much more controversial move.

EPA targets methane

Methane’s global warming potential is 20 to 80 times more powerful than carbon dioxide, although that penalty dissipates over time as CO2 stays in the atmosphere longer. Because of this potency, slashing methane emissions can allow the U.S. to make quick progress on lowering its climate impact. As a result, President Obama has made methane reductions a core tenet of his climate agenda.

The White House revealed its intention to regulate existing oil and gas wells as part of a joint agreement with Canada, timed to coincide with the visit of new Canadian Prime Minister Justin Trudeau. EPA administrator Gina McCarthy said that reductions of methane from existing wells must be made if the 40 percent target is to be reached by 2025. “Based on this growing body of science it’s become clear it’s come time for EPA to take additional action,” McCarthy said in a press conference. “We’ll start this work immediately and we intend to work quickly.”

The justification for action was bolstered by an upward revision in estimated methane emissions. “Data on oil and gas show that methane emissions from the sector are higher than previously estimated,” the EPA said in press release in April. “The oil and gas sector is the largest emitting-sector for methane and accounts for a third of total U.S. methane emissions.” The EPA says that the U.S. emitted 721.5 million metric tons of carbon dioxide equivalent in 2013, up from a previously estimated 636.3 million metric tons of CO2 equivalent. The upward revision was enough to make the oil and gas sector the top source of methane emissions in the U.S.

Too costly or entirely manageable?

“This pollutant, methane, is also energy. [Preventing leaks] will actually save the industry money,” Conrad Schneider of the Clean Air Task Force told the Post. “Many of these measures will pay for themselves in a few years.”

The oil and gas industry angrily protested both sets of regulations, but held particular ire for the pending limits on existing sources. Industry representatives warned that the regulations will lead to reduced drilling activity, higher energy costs and job losses. They also point out that oil and gas drillers are cutting methane emissions on their own. By the EPA’s own assessment, including the upward revision in April, U.S. methane emissions have declined by 9 percent since 2005 despite the enormous surge in drilling activity. “Methane is the product that we sell. We are incentivized already to prevent methane emissions,” Howard Feldman, the director of regulatory affairs at the American Petroleum Institute told The Washington Post. But that is also why the regulations may not be as costly as the industry claims. “This pollutant, methane, is also energy. [Preventing leaks] will actually save the industry money,” Conrad Schneider of the Clean Air Task Force told the Post. “Many of these measures will pay for themselves in a few years.”

The industry is also skeptical of EPA’s motives. “We’re concerned the administration is putting politics ahead of science by turning the numbers on their head,” Kyle Isakower of the American Petroleum Institute said in April. “EPA’s inventory has consistently shown a downward trend in emissions even as oil and natural gas production has soared. Somehow, in this year’s inventory, using a flawed new methodology, EPA has erased that progress from its historic data.”

The EPA dismissed those concerns. “We continue to see this as enormously cost effective, and we also predict it will have very little impact in terms of the cost of natural gas and literally no impact on the cost of oil production,” EPA administrator McCarthy said. The EPA projects that the finalized regulations for new sources will cost $530 million in 2025, but result in $690 million in benefits. API says the costs could reach $800 million annually.

Some industry players are taking the regulations in stride. Forty-one energy companies have agreed to voluntarily cut their methane emissions in a partnership with the EPA, although most of them are in the gas transmission and distribution sector, rather than upstream production.

Natural gas is key for Obama

The administration sees limits on methane as crucial not just because emissions have been uncapped up until now, but also because Obama’s climate agenda hinges very heavily on natural gas. The consumption of natural gas in the electric power sector is set to climb rapidly in the years ahead as EPA regulations edge out coal-fired power plants.

The current rules are a sideshow compared to the regulations that the EPA is scrambling to put together before next year—limits that would be put on existing gas wells, processing plants, pipelines and other infrastructure.

The EPA’s Clean Power Plan (CPP), the administration’s signature climate initiative that puts greenhouse gas limits on power plants, will accelerate the transition from coal to gas and renewables, a trend that is already underway. According to the EIA’s latest projections, between 2015 and 2030 natural gas generation will increase by 354 billion kilowatthours under the CPP. But if the CPP were scrapped, natural gas generation would only rise by 123 billion kilowatthours. The gains for natural gas under the CPP come at the expense of coal—natural gas generation surpasses coal in the early 2020s, a transition that would occur years later without the CPP. In short, the EPA is placing a large bet on natural gas as a solution to climate change.

The displacement of coal from the electric power sector would dramatically reduce U.S. CO2 emissions, but for the climate benefits to be realized, the U.S. needs to get a handle on methane.

The clock is ticking

The finalized regulations on new sources of methane will require more efficient drilling and transmission of natural gas in the future. But it is a sideshow compared to the regulations that the EPA is scrambling to put together before next year—limits that would be put on existing gas wells, processing plants, pipelines and other infrastructure.

The EPA could be fighting an uphill battle. Despite the ambitious regulatory agenda, it is unclear if the Obama administration has the time to complete the rules before the end of the President’s term. The EPA has requested data from the industry on their methane emissions, which will help in crafting new rules. But time is running out.

Moreover, even if the EPA can rush to complete the job before President Trump or Clinton take office, the next administration could simply roll them back if they wished.

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The Fuse is an energy news and analysis site supported by Securing America’s Future Energy. The views expressed here are those of individual contributors and do not necessarily represent the views of the organization.

Issues in Focus

Safety Standards for Crude-By-Rail Shipments

A series of accidents in North America in recent years have raised concerns regarding rail shipments of crude oil. Fatal accidents in Lynchburg, Virginia, Lac-Megantic, Quebec, Fayette County, West Virginia, and (most recently) Culbertson, Montana have prompted public outcry and regulatory scrutiny.

2014 saw an all-time record of 144 oil train incidents in the U.S.—up from just one in 2009—causing a total of more than $7 million in damage.

The spate of crude-by-rail accidents has emerged from the confluence of three factors. First is the massive increase in oil movements by rail, which has increased more than three-fold since 2010. Second is the inadequate safety features of DOT-111 cars, particularly those constructed prior to 2011, which account for roughly 70 percent of tank cars on U.S. railroads. Third is the high volatility of oil produced from the Bakken and other shale formations, which makes this crude more prone towards combustion.

Of these three, rail car safety standards is the factor over which regulators can exert the most control. After months of regulatory review, on May 1, 2015, the White House and the Department of Transportation unveiled the new safety standards. The announcement also coincided with new tank car standards in Canada—a critical move, since many crude by rail shipments cross the U.S.-Canadian border. In the words DOT, the new rule:

Since the rule was announced, Republicans in Congress sought to roll back the provision calling for an advanced breaking system, following concerns from the rail industry that such an upgrade would be unnecessary and could cost billions of dollars. The advanced braking systems are required to be in place by 2021.

Democrats in Congress have argued that the new rules are insufficient to mitigate the danger. Senator Maria Cantwell (D-WA) and Senator Tammy Baldwin (D-WI) both issued statements arguing that the rules were insufficient and the timelines for safety improvements were too long.

The current industry standard car, the CPC-1232, came into usage in October 2011. These cars have half inch thick shells (marginally thicker than the DOT-111 7/16 inch shells) and advanced valves that are more resilient in the event of an accident. However, these newer cars were involved in the derailments and explosions in Virginia and West Virginia within the past year, raising questions about the validity of replacing only the DOT-111s manufactured before 2011.

Before the rule was finalized, early reports indicated that the rule submitted to the White House by the Department of Transportation has proposed a two-stage phase-out of the current fleet of railcars, focusing first on the pre-2011 cars, then the current standard CPC-1232 cars. In the final rule, DOT mandated a more aggressive timeline for retrofitting the CPC-1232 cars, imposing a deadline of April 1, 2020 for non-jacketed cars.

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DataSpotlight

The recent oil production boom in the United States, while astounding, has created a misleading narrative that the United States is no longer dependent on oil imports. Reports of surging domestic production, calls for relaxation of the crude oil export ban, labels of “Saudi America,” and the recent collapse in oil prices have created a perception that the United States has more oil than it knows what to do with.

This view is misguided. While some forecasts project that the United States could become a self-sufficient oil producer within the next decade, this remains a distant prospect. According to the April 2015 Short Term Energy Outlook, total U.S. crude oil production averaged an estimated 9.3 million barrels per day in March, while total oil demand in the country is over 19 million barrels per day.

This graphic helps illustrate the regional variations in crude oil supply and demand. North America, Europe, and Asia all run significant production deficits, with the Middle East, Africa, Latin America, and Former Soviet Union are global engines of crude oil supply.